A Patently Erroneous Decision: Analysing The Canadian Patent Protection Of Pharmaceutical Products Holding

Introduction

The onset of Covid-19 brought discussions on the accessibility of medication and medical devices to the forefront, with special emphasis on how intellectual property regimes act as potential hurdles to accessibility. The role of international organs like the World Trade Organisation (“WTO”) in making medication inaccessible was highlighted during the discourse around the TRIPS waiver proposal for Covid-19 vaccinations. While Covid-19 highlighted how intellectual property regimes quite literally dealt with matters of life and death with respect to medication and medical devices, the problem is in no way recent. This piece will seek to examine the decision of the WTO panel in the Canada-Patent Protection of Pharmaceutical Products case (2000) and analyse how its decision increased the barriers towards achieving healthcare accessibility.

The dispute centred around Canada’s (erstwhile) Manufacturing and Storage of Patented Medicines Regulations (“Regulations”) which took a strict approach to evaluating the safety and efficacy of a pharmaceutical product. Pharmaceutical products under the Regulations were broadly categorised as generic and novel. Novel drugs went through an intense eight-to-twelve-year review period before they could be marketed. This review period occurred during the twenty-year patent-term, that is, the time during which a product’s patent would be valid. Generic drugs, in comparison, were subjected to review for only three to six-and-a-half years as reliance on pre-existing data was permitted.

The Canadian Parliament noted that the quality-review period for generic pharmaceutical products by Canadian Regulatory authorities would mean that there would exist a three-to-six-and-a-half-year gap between a patent lapsing and generic products being able to enter the market. This would result in a three-to-six-and-a-half year gap between the expiration of a patent and when competitors could introduce their versions of a medication, resulting in a ‘de-facto monopoly’ that exceeded the patent-term. In response, the Canadian Patent Act (“Act”) was reviewed in 1992, and inter alia, Sections 55.2 (1) and (2) were added. Section 55.2 (1) allowed for the construction, development, or sale of a patented product by a party that did not have said patent nor a licence for the same during the review period if such action was “reasonably related to the development and submission of information” for clearance purposes, as mandated by Canadian or another country’s laws. Section 55.2 (2) of the Act read with the Regulations allowed manufacturers to produce products six months before the patent expired to stockpile generic copies for sale when said patent expired. In response, the European Communities and its Member States (“EC“) submitted a complaint before the WTO alleging that the provisions were violative of Canada’s international obligations under The Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”).

The Panel’s Holding

The Panel examined Sections 55.2 (1) and (2) independently. It held that the former was a permissible exception to Article 28 of the TRIPS (rights conferred on a patentee), whereas Section 55.2 (2) was violative of TRIPS and needed to be rectified. The manner of rectification was left up to Canada. 

Section 55.2 (2)

The rights conferred by Article 28 could only be exempted in minimal circumstances, a stand both Canada and the EC accepted. The Panel, on examination of Article 30, seemed to accept the EC’s contention that the text of Article 30 laid down three such circumstances:

(i) It should be a limited exception;

(ii) That does not unreasonably conflict with normal exploitation of a patent; and

(iii) That does not unreasonably prejudice the legitimate interests of the patentee, taking into account third-party legitimate interests.

The failure to satisfy any one of these exceptions would mean the exemption under Article 30 was invalid. It ruled that each exception was disjunctive and that a violation of any of the three conditions, that is, an unlimited exception, unreasonable restriction on patent exploitation, or unfair prejudice to patentee’s rights, would render the exemption invalid under Article 30. The evaluation of these three circumstances would also have to incorporate the society-patentee balance requirement under Articles 7 and 8 of the TRIPS.

The Panel interpreted the term ‘limited exception’ in Article 30 of the TRIPS as indicating that the TRIPS wished to eliminate the possibility of reading the term ‘exception’ expansively, one which would “make a small diminution of the rights in question”. Patent rights embody a larger set of rights besides sale, such as the right not to sell and the right to refuse to allow others to make or use such products. The concerned stockpiling exception, though not permitting sale, still infringed on the right of a patentee to or stop others from manufacturing, offering for sale, using, selling, or importing patented medication and therefore could not be a limited exception.

As the exception did not meet the first condition (i.e. an exception must be limited), the Panel didn’t see fit to examine the other two conditions in Article 30, nor the EC’s allegation of discriminatory action under Article 27.

Section 55.2 (1)

The exceptions in Article 30, as discussed above, would need to be read restrictively. The Panel examined the Section 55.2 (1) exception on the basis of the three conditions in Article 30. The Panel held that the regulatory exception would be a limited exception bound by the purpose of providing information for clearance purposes. Moreover, the absence of a clearance exception would rob the free market of generic products for up to three years after the patent’s expiry. This is because, generic manufacturers would be forced to wait until expiry to begin the certification procedures. 

On the question of whether it interfered with “normal exploitation of the patent”, the Panel noted that normal exploitation referred to the working of patents and all their accompanying rights. Once the patent term comes to an end, the patentee continues to enjoy market exclusivity since their competitors would still need time to build an inventory. However, this period for the patentee is unusually high as a result of Canada’s regulations. Therefore, efforts to adjust the post-patent competitiveness of the market would not interfere with the normal exploitation of a patent by the patentee. This is because, such efforts would impact the patentee after the expiration of their patent and would not affect the rights and obligations of a patentee.

The Panel then examined whether the “legitimate interests of third-persons” protected under Article 30 had been violated. The EC argued that legitimate interests were synonymous with legal interests. The EC argued that third parties, here competing patent owners, had no legitimate interest as legally their right to make, sell or use a patented good would only arise after the expiry of the patentee’s patent. The Panel disagreed with interpreting legitimate interests as strictly legal and noted at paragraph 7.69 that ‘legitimate’ instead referred to whether something was normatively justified. The relevant question was whether there existed justifiable public policy considerations. 

The EC also argued the time taken for it to get regulatory approval ate into its patent term by around eight-to-twelve years and therefore there was a legitimate interest in creating an after-patent-term exclusivity period. This was evidenced by some jurisdictions (such as, inter alia, the US and Israel) having enacted laws to extend patent terms to compensate for approval periods. The panel at para 1.82 noted that there was no comity in the international community as to whether extensions should be granted to compensate for approval periods and that in fact such disagreement was the reason why such a ‘regulatory review exception’ had not found its way into the recorded TRIPS negotiations agenda. Therefore, a de facto regulatory exception could not be considered as a normative legitimate interest that had been violated by Canada. As the EC had not raised any normative claims to justify a ‘legitimate interest’ violation, there was no infringement of Article 30. 

The last contention raised was that Section 55.2 (1) was discriminatory on the basis that it only targeted pharmaceutical products and therefore violative of Article 27.1. The Panel noted that exceptions under Article 30 would still be limited by Article 27. However, an exception with regards to particular technologies are not per se illegal as long as it is based on bona fide reasons. Examining whether discrimination occurred, the text of Section 55.2 (1) did not specify technological fields. Moreover, the fact that it had been predominantly applied to pharmaceutical products did not mean it was unfair. This is because, the section arose out of a non-discriminatory purpose (consumer protection) and would therefore be non-discriminatory, unless proved otherwise. 

Therefore, the Panel held that Section 55.2 (1) was legal under the TRIPS while Section 55.2 (2) was not.

Comments and Criticisms

The question of access is  crucial when it comes to issues of medicines. Patented medicines are notoriously expensive and patentees are often hesitant to negotiate favourable terms with generic manufacturers. Access to patents are effectively questions of ‘life and death’. Moreover, the presence of generic drugs directly results in easier access, as seen when India introduced generic AIDS drugs in Africa and reduced prices from $15,000 to $2,000 annually. The Canada Pharmaceuticals Patent dispute serves as a lens to see how international adjudicatory bodies balance questions of life and health with commercial interests.

The Panel’s order seemed to place a more significant emphasis on the Part III rights (rights conferred by a patent) conferred by the TRIPS while holding Part I (general provisions and basic principles) as primarily instructive. In the Panel’s adjudication on the stockpiling restriction, it held that interference with Article 28 rights need not be with regard to commercial working, but any of the aforementioned rights (licensing, right not to manufacture, etc.). Such a ruling seems to contradict the fundamental basis of patent rights, that is, incentivising innovation to ensure public benefit. The only possible harm that a patentee would face is that they would not be able to charge stockpilers a licence fee. However, licence fees offer a means to ensure that patentees are rewarded for third-party sale of their products. The stockpiling requirement exists to ensure that pharmaceutical companies are unable to maintain a monopoly even after their patent expires – it never allowed for commercial use of the patent during the patent term. The question of licences and lost profit is therefore irrelevant. There was no real commercial loss incurred by the patent owners as a result of the exception. As in other international trade-law disputes, the absence of any actual harm should be a major factor in deciding the remedy. The Panel could have recognised infringement with no real damages and awarded symbolic nominal damages. Instead, it pedestalized the rights of a patentee even where there was no real loss incurred to them by competitors stockpiling, thereby distorting post-market competitiveness, 

Ironically, in the author’s opinion, the Panel recognised that the clearance exception under Section 55.2 (1) validly maintained post-patent competitiveness. The panel in its discussion on Section 55.2 recognised that post-expiry competitiveness was important by allowing clearance proceedings to commence pre-expiry. In the same breath, it then refused to allow generic manufacturers to build inventories to compete with patentee’s post-expiry which would result in a de facto monopoly that the Canadian measures were introduced to tackle in the first place. Even if non-patentees were allowed to build inventories and enter into future supply agreements, current demand during the duration of the patent would only have been serviceable by the patentee. The panel’s decision placed an absurd emphasis on the right of a patentee to exclude others from manufacturing or dealing in a patented good while still recognising that monopolies are not protected by TRIPS. Such a holding recognises the importance of access but fails to accord it any real significance as opposed to the patentee’s rights to profit. Patent rights do not exist as inviolable rights. At the end of the day, they exist to balance investor profit and societal benefit. 

Conclusion

Considering the foregoing, I argue that upholding in the abstract rights that have no bearing on the profits of the patentee during the pendency of the patent is an absolute violation of the balancing requirement under Article 7 of the TRIPS. The Panel’s views on Article 30, a comparatively lax exception compared to the far more limited exceptions, such as that of compulsory licensing of patents under Article 31 of TRIPS, further cements growing concerns that international intellectual property rights constrain human rights to life and health. While this article focused on the merits (or lack thereof) in the Panel’s decision in isolation, the role of TRIPS in addressing public health concerns in a post-COVID world cannot be understated. Access to medications has ramifications on public health and safety across borders, and issues around medication may well invoke human rights concerns. One possible approach suggested is a harmonious reading of the ICESCR (International Covenant on Economic, Social and Cultural Rights) with TRIPS by WTO Panels where parties to a dispute are party to both conventions, so as to provide the Panel with the tools to perform a human-rights friendly balancing exercise. In conclusion, the WTO panel in the present case had the perfect opportunity to perform a balancing exercise that truly encapsulated the spirit of Article 7 but ultimately fell short.


Abhijay Srekanth is an LLM candidate at the Queen Mary University of London specialising in IP, and a recent graduate of Jindal Global Law School.

Image: Ariel Davis (modified)


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